NetApp Shares Nudge Lower on Job Cuts

NEW YORK (TheStreet) -- Shares of NetApp (NTAP) nudged lower in early trading on Thursday after the storage networking specialist announced plans to cut 600 jobs, or around 6% of its work force.

NetApp shares were off 0.77% at $37.56 shortly after market open, and have slipped 5.7% during the last three months.

The company had 12,680 employees at the end of its most recent fiscal quarter.

The Sunnyvale, Calif.-based firm announced the "business realignment plan" in a filing with the Securities and Exchange Commission on Wednesday, highlighting a constrained IT spending environment. NetApp expects that the restructuring will be implemented through the end of the first quarter of its fiscal 2015 period.

The company, which is currently in the fourth quarter of its fiscal 2014, expects to incur charges of around $35 million to $45 million for the headcount reduction. NetApp expects to incur most of these charges during its current quarter.

"NTAP has historically been reluctant to reduce headcount when it viewed weaker IT spending as temporary," wrote ISI Group Analyst Brian Marshall, in a note.

NetApp, which competes with EMC (EMC) and HP (HPQ), missed wall Street's revenue estimate when it reported its fiscal third-quarter results last month. During its earnings conference call, the company noted "downward pressure" in federal IT spending, which pushed its U.S. public sector revenue down 13% from the prior year's quarter.

"While we would be careful to interpret the headcount reduction as signaling incremental weakness since the February conference call, it suggests NTAP hasn't yet seen an uptick in its core business," wrote ISI Group's Marshall, who nonetheless maintained his 'buy' rating on the stock. "Sales growth remains sluggish but we believe take-out value provides a floor and new product introductions could invigorate growth in the 2H."